UNITED STATES DISTRICT COURT SOUTHERN DISTRICT … [Dkt. 1184] The... · UNITED STATES DISTRICT...

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------x In re: LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION This document applies to: 09 MD 2017 (LAK) In re Lehman Brothers Equity/Debt Sec. Litig. 08 Civ. 5523 (LAK) ----------------------------------------------------------x

THE STRUCTURED PRODUCT PLAINTIFFS’ RENEWED MOTION FOR RECONSIDERATION PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 54(b) AND MOTION FOR AMENDMENT OF CLASS

CERTIFICATION PURSUANT TO RULE 23(c)(1)(C)

Case 1:09-md-02017-LAK-GWG Document 1184 Filed 04/23/13 of 22

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TABLE OF CONTENTS

I. PRELIMINARY STATEMENT .........................................................................................1 II. RELEVANT PROCEDURAL HISTORY ..........................................................................2

A. The Court’s Ruling on Defendants’ Motion to Dismiss…………………………. 2 B. The Second Circuit Issues NECA-IBEW…………………………………………. 3 C. The Court’s Ruling on Plaintiffs’ Motion for Reconsideration…………………... 4 D. The Court’s Ruling on Class Certification……………………………………….. 5 E. The Supreme Court’s Denial of Goldman Sachs’s Writ Petition………………… 6 F. The Second Circuit’s Denial of UBS’s Rule 23(f) Petition……………………… 6

III. THE COURT SHOULD RECONSIDER ITS MOTION TO

DISMISS RULING ..............................................................................................................7 A. The Court Has Discretion to Reconsider Its Ruling……………………………… 7 B. The Court Should Reinstate the Claims Based on the Dismissed

Offerings Because They Implicate the Same Set of Concerns as Plaintiffs’ Claims………………………………………………………………. 7 1. The Lehman Misstatements and Omissions ................................................8 2. The Principal Protection Misstatements and

Omissions .....................................................................................................9

C. The Court Should Reinstate the Two Offerings It Dismissed As Untimely………………………………………………………………………… 10

IV. THE COURT SHOULD AMEND ITS CLASS CERTIFICATION

ORDER ..............................................................................................................................11 A. The Court Has Discretion to Amend Its Class Certification

Order…………………………………………………………………………….. 11 B. The Rule 23(a) Prerequisites Remain Satisfied…………………………………. 12 C. Common Issues Still Predominate Over Individual Issues……………………… 13


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D. The Class Action Is Still Superior………………………………………………. 15

V. CONCLUSION ..................................................................................................................16


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TABLE OF AUTHORITIES

Cases

Amchem Products v. Windsor 521 U.S. 591, 117 S. Ct. 2231 (1997) ................................................................................ 13, 14 Blum v. Yaretsky 457 U.S. 991, 102 S. Ct. 2777 (1982)…………………………………………………………..3 Boucher v. Syracuse University 164 F.3d 113 (2d Cir. 1999) ..................................................................................................... 11 Consolidated Rail Corp. v. Town of Hyde Park 47 F.3d 473 (2d Cir. 1995) ....................................................................................................... 12 Coopers & Lybrand v. Livesay 437 U.S. 463, 98 S. Ct. 2454 (1978) ........................................................................................ 11 Freidus v. ING Groep N.V. 2011 WL 4056743 (S.D.N.Y. Mar. 29, 2011) ............................................................................ 7 General Telephone Co. of Southwest v. Falcon 457 U.S. 147, 102 S. Ct. 2364 (1982) ...................................................................................... 11 Goldman, Sachs & Co. v. NECA-IBEW Health & Welfare Fund 2013 WL 1091772 (U.S. Mar. 18, 2013)……………………………………..………………..6 Gratz v. Bollinger 539 U.S. 244, 123 S. Ct. 2411(2003) .......................................................................................... 3 In re Flag Telecom Holdings, Ltd. Securities Litig. 574 F.3d 29 (2d Cir. 2009) ...................................................................................................... 13 In re IndyMac Mortgage-Backed Securities Litig. 286 F.R.D. 226 (S.D.N.Y. 2012) .............................................................................................. 14 In re J.P. Morgan Chase Cash Balance Litig. 255 F.R.D. 130 (S.D.N.Y. 2009) ................................................................................. 11, 12, 15 In re Lehman Brothers Securities & ERISA Litig. 799 F. Supp. 2d 258 (S.D.N.Y. 2011) ................................................................................. 2, 10


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In re Lehman Brothers Securities & ERISA Litig. 2013 WL 440622 (S.D.N.Y. Jan. 23, 2013) ...................................................................... passim In re Morgan Stanley Pass-Through Certificates Litig. 2013 WL 139556 (S.D.N.Y. Jan. 11, 2013) ............................................................................... 7 In re NYSE Specialists Securities Litig. 260 F.R.D. 55 (S.D.N.Y. 2009) ................................................................................................ 13 In re Rezulin Products Liability Litig.

224 F.R.D. 346 (S.D.N.Y. 2004)…………………………….…………………………………7 In re Vivendi Universal, S.A. Sec. Litig. 765 F. Supp. 2d 512 (S.D.N.Y. 2011) ...................................................................................... 14 Langley v. Coughlin 715 F. Supp. 522 (S.D.N.Y. 1989) ..................................................................................... 12, 15 NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.

693 F.3d 145 (2d Cir. 2012) .............................................................................................. passim New Jersey Carpenters Health Fund v. DLJ Mortgage Capital, Inc.

2013 WL 357615 (S.D.N.Y. Jan. 23, 2013) ............................................................................... 7 New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group, PLC

709 F.3d 109 (2d Cir. 2013) ....................................................................................................... 7 Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp. 632 F.3d 762 (1st Cir. 2011) ..................................................................................................... 14 Public Employees’ Retirement System of Miss. v. Merrill Lynch & Co., Inc. 277 F.R.D. 97 (S.D.N.Y. 2011) ................................................................................................ 12 Robidoux v. Celani 987 F.2d 931 (2d Cir. 1993) ..................................................................................................... 13 Wal-Mart Stores, Inc. v. Dukes 131 S. Ct. 2541 (2011) .............................................................................................................. 12 Rules Fed. R. Civ. P. 23 ................................................................................................................... passim Fed. R. Civ. P. 54 ............................................................................................................................ 7


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I. PRELIMINARY STATEMENT

Plaintiffs initially sought to represent investors in 84 structured product offerings that

Lehman issued and UBS sold pursuant to the same registration statement. The Court granted

defendants’ motion to dismiss claims based on the notes the plaintiffs had not purchased, and

dismissed claims based on two additional notes that the Court concluded were barred by the

statute of repose. When the Second Circuit issued NECA-IBEW Health & Welfare Fund v.

Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), plaintiffs moved for reconsideration of this

ruling, arguing that the plaintiffs had “class standing” to pursue claims on behalf of investors in

the notes the plaintiffs had not purchased. The Court denied the motion without prejudice to

renewal pending the Supreme Court’s decision on Goldman Sachs’s petition for writ of

certiorari.

In January, the Court granted class certification, certifying claims brought on behalf of

investors in 31 note offerings in which the class representatives invested, including claims based

on two notes purchased by a plaintiff the Court declined to appoint as a class representative

under Rule 23(a)(4). In allowing the class representatives to pursue claims based on the two

notes they did not purchase, the Court noted “the substantial similarity in alleged

misrepresentations across the class period” and held that “the current representatives’ claims are

sufficiently similar to permit them to represent adequately the investors” in those notes. In re

Lehman Brothers Securities & ERISA Litig., No. 09 MD 2017 (LAK), 2013 WL 440622, at *2

(S.D.N.Y. Jan. 23, 2013). The Court applied NECA-IBEW “because it currently is binding in this

Circuit.” Id. at n.6. UBS filed a Rule 23(f) petition with the Second Circuit.

The Supreme Court denied Goldman Sachs’s petition for writ of certiorari, and the

Second Circuit denied UBS’s Rule 23(f) petition. Plaintiffs therefore renew their request that the


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Court revisit its motion to dismiss ruling and reinstate the claims based on the offerings the class

representatives did not purchase because, as the Court has recognized, the alleged misstatements

and omissions are substantially similar throughout the class period. Plaintiffs further request that

the Court amend its class certification order to include the reinstated offerings. Because the

claims for all 84 offerings are based on substantially similar misstatements and omissions,

including the reinstated offerings does not impact the Court’s finding that the Rule 23(a)

prerequisites are satisfied, that common issues predominate, and that class treatment of the

claims is superior to FINRA arbitrations. In fact, adding the 53 reinstated offerings to the

certified class will enhance the benefits of class certification because a greater number of claims

will be resolved in a single proceeding.

II. RELEVANT PROCEDURAL HISTORY

A. The Court’s Ruling on Defendants’ Motion to Dismiss

Plaintiffs filed their Third Amended Class Action Complaint on April 23, 2010. The

structured product plaintiffs brought claims on behalf of all persons and entities who purchased

or otherwise acquired any of the UBS-underwritten and Lehman-issued structured products that

were listed on Appendix B to the complaint. See Girard Decl., Ex.1 at ¶¶ 5, 101 & App. B.

On July 27, 2011, the Court issued its order granting in part and denying in part the

defendants’ motions to dismiss. See In re Lehman Brothers Securities & ERISA Litig., 799 F.

Supp. 2d 258, 273 (S.D.N.Y. 2011). The Court noted that plaintiffs asserted claims based on a

number of principal protection note (PPN) offerings “in which no named plaintiff purchased a

security” and that defendants challenged plaintiffs’ standing to pursue those claims. Id. at 273.

The Court concluded that plaintiffs lacked Article III standing to pursue the claims because “a

plaintiff does not suffer an injury in fact—and therefore has no standing to assert claims—in

consequence of false or misleading statements in offering materials for securities that it did not


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purchase.” Id. at 274. As the Court recognized, plaintiffs argued that they had standing

“because each PPN was offered pursuant to ‘common prospectuses [that] incorporated the

[common] SEC filings that contained the misstatements and omissions,’ ‘the false and

misleading statements were the same for each Offering,’ and because ‘all investors … were

personally injured by the same false or misleading statements made by the same defendants.’”

Id. (alterations in original) (quoting plaintiffs’ brief). The Court said “[t]his Court and others

have rejected this argument and plaintiffs have provided no authority that undermines that

conclusion.” Id. The Court therefore dismissed plaintiffs’ claims based on offerings they had

not invested in.

B. The Second Circuit Issues NECA-IBEW

In NECA-IBEW, the Second Circuit held that “a plaintiff has class standing if he

plausibly alleges (1) that he ‘personally has suffered some actual ... injury as a result of the

putatively illegal conduct of the defendant,’ and (2) that such conduct implicates ‘the same set of

concerns’ as the conduct alleged to have caused injury to other members of the putative class by

the same defendants.” 693 F.3d at 162 (citing Blum v. Yaretsky, 457 U.S. 991, 999, 102 S. Ct.

2777, 2783 (1982); Gratz v. Bollinger, 539 U.S. 244, 267, 123 S. Ct. 2411, 2426 (2003)). The

Court added that “in the context of claims alleging injury based on misrepresentations, the

misconduct alleged will almost always be the same: the making of a false or misleading

statement.” Id. To determine whether a plaintiff has class standing, courts examine “[w]hether

that conduct implicates the same set of concerns for [the] distinct sets of plaintiffs,” an inquiry

that “will depend on the nature and content of the specific misrepresentation alleged.” Id.

The Second Circuit’s analysis of whether the offerings implicated the same set of

concerns was complicated by the fact that the offerings were mortgage-backed certificates that

were backed by a variety of loan originators. The Court concluded that NECA had standing to


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assert claims on behalf of investors whose certificates were backed by loans issued by the same

loan originators as the loans backing the two certificates NECA had purchased. Id. at 164. Since

NECA’s claims were based on the originators’ abandonment of their underwriting guidelines, the

proof would center on each originator’s guidelines and underwriting practices and the claims

therefore “raise[d] a sufficiently similar set of concerns.” Id. at 163. In reaching this conclusion,

the Court described a much simpler case in which the alleged misconduct would implicate the

same set of concerns even though the misrepresentations appear in separate offering documents:

Indeed, one could imagine a series of corporate debt offerings, issued over the course of a year, all of which contained an identical misrepresentation about the issuing company’s impending insolvency. Sections 11 and 12(a)(2) claims brought by a purchaser of debt from one offering would raise a “set of concerns” nearly identical to that of a purchaser from another offering: the misrepresentation would infect the debt issued from every offering in like manner, given that all of it is backed by the same company whose solvency has been called into question. In that case, the inappropriateness of denying class standing on the happenstance of the misrepresentation’s location in one offering versus another seems patent.

Id. This example, which the Second Circuit cited as a fairly straightforward application of class

standing, is strikingly similar to plaintiffs’ claims against UBS.

C. The Court’s Ruling on Plaintiffs’ Motion for Reconsideration

Plaintiffs moved for reconsideration of the Court’s motion to dismiss order shortly after

the Second Circuit issued NECA-IBEW. See Dkt. No. 1009-11. Plaintiffs requested that the

Court reinstate the claims based on the offerings that the Court previously dismissed because

plaintiffs’ claims implicated the same set of concerns as the dismissed claims and, under NECA-

IBEW, plaintiffs have class standing to represent investors in the dismissed offerings. UBS

opposed, arguing in part that the Court should defer ruling on plaintiffs’ motion until the

Supreme Court ruled on Goldman Sachs’s petition for writ of certiorari. Dkt. No. 1014-15.


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The Court denied the motion “without prejudice to renewal after the Supreme Court acts

on the petition for writ of certiorari in [NECA-IBEW], and if the writ is granted, decides the

case.” Dkt. No. 1054.

D. The Court’s Ruling on Class Certification

On January 23, the Court granted plaintiffs’ motion for class certification. See In re

Lehman, 2013 WL 440622. UBS’s main argument in opposition to certification was that

individual issues of investor knowledge predominated over common issues. The Court rejected

this argument in certifying the Lehman-based claims under sections 11 and 12(a)(2). UBS

claimed that the articles their two experts had collected disclosed the facts plaintiffs allege were

misstated or omitted from the offering documents, but the Court found that “[t]he evidence is not

as clear as UBS asserts.” Id. at *4. The Court held that “[w]hether or not the offering documents

and Lehman’s financial statements contained material misrepresentations and omissions and

whether any corrective disclosures were disseminated widely are questions susceptible of

common proof.” Id. And the Court observed that UBS did not deny “that the alleged

manipulative use of Repo 105 transactions was not disclosed during the class period.” Id.

The Court also rejected UBS’s argument that the materiality of the alleged misleading

statements raised individual questions because Lehman’s conduct varied over time, holding that

“Lehman allegedly perpetrated the fraudulent scheme over the entire class period and the

language in the offering documents is substantially similar, thus raising common questions that

predominate.” Id.

The Court certified under section 11 only plaintiffs’ claim that the offering materials

were misleading because of their repeated references to “principal protection” without

meaningful cautionary language. After considering all of the evidence UBS submitted with its

opposition and sur-reply, the Court concluded that “these questions of knowledge are relevant


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only to UBS’s affirmative defense,” and that “potential affirmative defenses against individual

plaintiffs do not preclude class certification for claims under Section 11.” Id. at *3.

The Court also found that a class action was superior to thousands of individual FINRA

arbitrations, concluding that “[t]here are no apparent difficulties in the management of this case

beyond those that attend any large securities class action.” Id. at *5.

The Court appointed 18 plaintiffs as class representatives. The Court found one of the

proposed class representatives to be inadequate, but held that under NECA-IBEW the other

representatives could adequately represent the investors in the two notes he purchased because

“Lehman issued them off of the same registration statement” and because of “the substantial

similarity in alleged misrepresentations across the class period.” Id. at *2 n.6.

E. The Supreme Court’s Denial of Goldman Sachs’s Writ Petition

On March 18, 2013, the Supreme Court denied Goldman Sachs’s petition for writ of

certiorari. Goldman, Sachs & Co. v. NECA-IBEW Health & Welfare Fund, No. 12-528, 2013

WL 1091772 (U.S. Mar. 18, 2013).

F. The Second Circuit’s Denial of UBS’s Rule 23(f) Petition

UBS filed a Rule 23(f) petition requesting that the Second Circuit allow it to appeal the

Court’s class certification ruling. UBS argued that this Court had abused its discretion in

granting class certification because individual issues of investor knowledge predominated over

common issues. UBS did not raise the Court’s ruling that the class representatives had class

standing under NECA to represent investors in the two notes they did not purchase. Plaintiffs

opposed and on April 16 the Second Circuit denied the petition. Dkt. No. 1180.


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III. THE COURT SHOULD RECONSIDER ITS MOTION TO DISMISS RULING

A. The Court Has Discretion to Reconsider Its Ruling

The Court has discretion to revisit its ruling on defendants’ motion to dismiss under Rule

54(b) because NECA-IBEW was an intervening change in the law. See New Jersey Carpenters

Health Fund v. DLJ Mortgage Capital, Inc., No. 08 Civ. 5653 (PAC), 2013 WL 357615, at *4

(S.D.N.Y. Jan. 23, 2013) (“It is clear that NECA constitutes a change in the controlling law that

requires the Court to reanalyze its prior decisions.”); see also Freidus v. ING Groep N.V., No. 09

Civ. 1049 (LAK), 2011 WL 4056743, at *1 (S.D.N.Y. Mar. 29, 2011); In re Rezulin Products

Liability Litig., 224 F.R.D. 346, 349-50 (S.D.N.Y. 2004).

B. The Court Should Reinstate the Claims Based on the Dismissed Offerings Because They Implicate the Same Set of Concerns as Plaintiffs’ Claims

The Court should reinstate the claims based on the dismissed offerings because all 84

offerings were issued pursuant to the same registration statement and the offering documents

contain substantially similar (and mostly identical) misstatements and omissions about Lehman’s

financial condition and the principal protection feature of the notes. See In re Lehman, 2013 WL

440622, at *2 (noting “the substantial similarity in alleged misrepresentations across the class

period” and holding that “the current representatives’ claims are sufficiently similar to permit

them to represent adequately the investors” in two offerings they did not purchase). The current

class representatives therefore have standing to represent investors in the dismissed offerings.

See New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group, PLC, 709 F.3d 109,

128 (2d Cir. 2013) (noting that the relevant factual issue is “whether the relevant prospectuses

contained ‘similar if not identical’” misstatements and omissions); In re Morgan Stanley Pass-

Through Certificates Litig., No. 09 Civ. 2137 (LTS) (MHD), 2013 WL 139556, at *2-3

(S.D.N.Y. Jan. 11, 2013) (reinstating thirteen dismissed offerings because the defendant’s


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conduct implicated the same set of concerns for each offering where the defendant, “in its

capacity as a loan purchaser, misrepresented its compliance with its stated purchasing

guidelines”).

1. The Lehman Misstatements and Omissions

The Lehman claims are based on misrepresentations and omissions in twelve of

Lehman’s SEC filings concerning (1) Lehman’s use of Repo 105 transactions to artificially

reduce its net leverage ratio at the end of quarterly reporting periods; (2) Lehman’s routine

disregard of its risk limits, its use of stress testing to evaluate risks associated with its real estate

portfolio, and the number of days on which Lehman exceeded its Value-at-Risk limits; and

(3) Lehman’s significant concentrations of credit risk in global real estate and Alt-A mortgages.

One or more of the twelve SEC filings are incorporated into the offering documents for each of

the 84 offerings.

Each plaintiff contends that he or she suffered injury as a result of the false and

misleading statements and omissions in the SEC filings that were incorporated into the offering

documents for the offering (or offerings) he or she purchased. Under NECA-IBEW, a plaintiff

whose offering documents incorporated Lehman’s 10-Q for the third quarter of 2007 has class

standing to represent investors in other offerings with offering documents that incorporated the

same 10-Q, because they were injured by identical misstatements and omissions. 693 F.3d at

163-64 (“Sections 11 and 12(a)(2) claims brought by a purchaser of debt from” one of “a series

of corporate debt offerings, issued over the course of a year, all of which contained an identical

misrepresentation about the issuing company’s impending insolvency … would raise a ‘set of

concerns’ nearly identical to that of a purchaser from another offering”). The same is true for

each of the other SEC filings.


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Exhibit 2 to the Girard Declaration is a chart that identifies each of the 84 offerings by

name and CUSIP, lists the SEC filings that are incorporated into the offering documents for each

offering, and lists the class representatives who purchased each note. Exhibit 3 shows the SEC

filings, and the Lehman misstatements and omissions in each SEC filing, that are incorporated

into the offering documents for each of the offerings. (The offerings included in the class

certification order are highlighted in both charts.) The charts show that the dismissed offerings

are interspersed among the offerings the class representatives purchased. And each of the twelve

SEC filings is incorporated into the offering documents for one or more of the offerings

purchased by a class representative. The class representatives will use the same evidence to

prove their claims that will be used to prove the claims based on the offerings they did not

purchase. The class representatives therefore have class standing under NECA-IBEW to

represent the claims of investors in the offerings the Court previously dismissed.

2. The Principal Protection Misstatements and Omissions

The misstatements and omissions about the principal protection aspect of the offerings

are also substantially similar across the offerings. The pricing supplements for all of the

principal protection offerings feature the terms “principal protection,” “100% principal

protection,” or “partial protection” three or more times on the first page. They include several

additional statements that highlight “principal protection” and say that investors would receive at

least their principal (either in full for the 100% principal protection notes or in part for partial

protection notes) if they held the notes to maturity.

The three statements UBS has pointed to as disclosures that it contends sufficiently offset

the repeated representations about principal protection also appear in the pricing supplements for

one or more of the represented offerings. One of the statements, which says only that the notes

“are not deposit liabilities of Lehman Brothers Holdings, Inc. and are not FDIC-insured,”


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appears in all of the pricing supplements. The other two are a footnote that references the

“creditworthiness of the issuer” and a statement at or near the end of a list of “Key Risks” that

references “the actual and perceived creditworthiness of Lehman Brothers Holdings Inc.” Some

of the pricing supplements contain both of these statements, some contain neither, and some

contain only one of them.

Exhibit 2 to the Girard Declaration lists all 84 of the offerings and shows whether these

two statements are included in the pricing supplement for each offering. The chart shows that at

least one of the class representatives’ pricing supplements falls into each of the four categories:

pricing supplements that contain (1) neither statement, (2) only the footnote, (3) only the “Key

Risk,” and (4) both statements.1 Since the class representatives will therefore use the same

evidence to prove both their claims and the claims based on the offerings they did not purchase,

they have class standing to represent investors in all 84 offerings.

C. The Court Should Reinstate the Two Offerings It Dismissed As Untimely

The Court also dismissed claims based on the two offerings that occurred on March 30,

20072 as barred by the statute of repose. The Court recognized that “the filing of a class action

suspends the running of applicable statutes of limitations for all putative class members even

where the putative class plaintiff did not have standing to assert the claims at issue,” but held that

the statute of repose cannot be tolled. See In re Lehman, 799 F. Supp. 2d at 309-10. The Court

1 For example, Ronald Profili and Richard Barrett both purchased offerings with pricing supplements that contained neither statement (offerings 6 and 35), Mohan Ananda purchased offerings with pricing supplements that included only the footnote (offerings 18 and 19), Lawrence Rose and Grace Wang purchased offerings with pricing supplements that included only the Key Risk statement (offerings 42 and 43), and Nick Fotinos and Joe Rottman purchased offerings with pricing supplements that included both statements (offerings 26 and 45). 2 The two offerings are the March 30, 2007 100% Principal Protection Notes Linked to a Global Index Basket (52520W564) (524908VP2) and the March 30, 2007 Performance Securities with Partial Protection Linked to a Global Index Basket (52520W556) (524908VQ0).


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therefore dismissed the claims based on the two offerings that occurred more than three years

before the Third Amended Complaint was filed on April 23, 2010. Id. at 310.

When class representative Stephen Gott filed his initial complaint on November 6, 2008,

however, the statute of repose had not run for those two offerings. See Case No. 1:08-cv-09578-

LAK (S.D.N.Y.), Dkt. No. 1 (copy attached as Exhibit 4 to the Girard Declaration). Mr. Gott’s

complaint was filed on behalf of “a Class consisting of all persons or entities who, between May

30, 2006 and September 15, 2008 inclusive, purchased Lehman Principal Protection Notes, and

who were damaged thereby.” Id., ¶ 27. Since, under NECA-IBEW, Mr. Gott had class standing

to pursue claims on behalf of investors of all of the principal protection offerings, including the

two March 30, 2007 offerings, the statute of repose does not bar those claims.

IV. THE COURT SHOULD AMEND ITS CLASS CERTIFICATION ORDER

A. The Court Has Discretion to Amend Its Class Certification Order

Rule 23 says that “[a]n order that grants or denies class certification may be altered or

amended before final judgment.” Fed. R. Civ. P. 23(c)(1)(C). The Supreme Court has instructed

that “[e]ven after a certification order is entered, the judge remains free to modify it in light of

subsequent developments in the litigation. For such an order, particularly during the period

before any notice is sent to members of the class, ‘is inherently tentative.’” General Telephone

Co. of Southwest v. Falcon, 457 U.S. 147, 160, 102 S. Ct. 2364, 2372 (1982) (quoting Coopers

& Lybrand v. Livesay, 437 U.S. 463, 469 n.11, 98 S. Ct. 2454, 2458 n.11 (1978)). In fact,

“‘courts are required to reassess their rulings as the case develops,’ and ‘must define, redefine,

subclass, and decertify as appropriate in the progression of the case from assertion to facts.’” In

re J.P. Morgan Chase Cash Balance Litig., 255 F.R.D. 130, 133 (S.D.N.Y. 2009) (quoting

Boucher v. Syracuse University, 164 F.3d 113, 118 (2d Cir. 1999)). “Absent some significant

intervening event,” however, the findings in the Court’s class certification order “may be deemed


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to be the law of the case.” Langley v. Coughlin, 715 F. Supp. 522, 553 (S.D.N.Y. 1989); see also

In re J.P. Morgan, 255 F.R.D. at 133-34 (“The issue thus becomes whether Plaintiffs have

identified developments in the case that warrant disturbing [the prior] class certification order.”).

The NECA-IBEW decision and the Supreme Court’s denial of the writ petition, are

significant intervening events. Under NECA-IBEW the class representatives have class standing

to pursue claims based on all of the offerings which, as the Court previously recognized, were

issued and sold pursuant to substantially similar misstatements and omissions. The Court should

therefore amend the class definition in its prior class certification to include all 84 offerings.

B. The Rule 23(a) Prerequisites Remain Satisfied

Including the reinstated offerings does not impact the Court’s finding that the Rule 23(a)

prerequisites are satisfied. The class is still too numerous for joinder to be practicable. See

Consolidated Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995) (holding that

numerosity is presumed when a class consists of 40 or more members). There is still

commonality because the claims based on all offerings “depend upon a common contention” that

“is capable of classwide resolution—which means that determination of its truth or falsity will

resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart

Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011). One of the common contentions is that the

offering documents contained misstatements and omissions of material fact, found specifically in

the twelve Lehman SEC filings and the pricing supplements’ statements about principal

protection. See Public Employees’ Retirement System of Miss. v. Merrill Lynch & Co., Inc., 277

F.R.D. 97, 105 (S.D.N.Y. 2011) (“[C]ourts in this circuit have held that the Rule 23 commonality

requirement is ‘plainly satisfied [where] the alleged misrepresentations in the prospectus relate to

all the investors, [as the] existence and materiality of such misrepresentations obviously present

important common issues.’” (citation omitted)). Another common contention is whether the


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misstatements and omissions were material to a reasonable investor. Id. at 114 (“Because

materiality is determined by an objective rather than a subjective standard, the question of

materiality, ‘rather than being an individual issue, is in fact a common issue.’” (citation

omitted)).

The class representatives’ claims remain typical because “each class member’s claim

arises from the same course of events and each class member makes similar legal arguments to

prove the defendant’s liability.” In re Flag Telecom Holdings, Ltd. Securities Litig., 574 F.3d

29, 35 (2d Cir. 2009) (quoting Robidoux v. Celani, 987 F.2d 931, 936 (2d Cir. 1993)). Because

the alleged misstatements and omissions were substantially similar throughout the class period,

the Court’s finding that the typicality requirement was satisfied is not impacted by including the

reinstated offerings. The Court has also found that the class representatives will adequately

represent the class, including class members who purchased the two offerings that none of the

class representatives purchased. Because “the proposed class representatives possess ‘the same

interest and suffer the same injury as the class members,’” they are adequate representatives of

the class members who purchased the reinstated offerings. In re NYSE Specialists Securities

Litig., 260 F.R.D. 55, 73 (S.D.N.Y. 2009) (quoting Amchem Products v. Windsor, 521 U.S. 591,

625-26, 117 S. Ct. 2231, 2251 (1997)).

C. Common Issues Still Predominate Over Individual Issues

Adding the reinstated offerings to the class does not impact the Court’s predominance

analysis. In its class certification order, the Court noted “the substantial similarity in alleged

misrepresentations across the class period.” In re Lehman, 2013 WL 440622, at *2. This Court

has previously recognized that “[c]ourts in this and other districts have found that such

substantial similarity of the allegedly misleading statements in Offering Documents is sufficient

for class certification, even where class members purchased different offerings at different


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times.” In re IndyMac Mortgage-Backed Securities Litig., 286 F.R.D. 226, 241 (S.D.N.Y. 2012);

see also Amchem, 521 U.S. at 594, 117 S. Ct. at 2236 (the predominance “inquiry trains on the

legal or factual questions that qualify each class member’s case as a genuine controversy … and

tests whether proposed classes are sufficiently cohesive to warrant adjudication by

representation”). The reinstated offerings do not include any new SEC filings, so plaintiffs’

evidence will still focus on whether there were false or misleading statements or omissions in the

pricing supplements and the twelve SEC filings incorporated into the offering documents and

whether those misstatements and omissions were material to a reasonable investor.

The jury will not have to consider each offering separately at trial. Instead, as discussed

above in section III.B. and as shown by Exhibits 2 and 3, the issues for the jury will be whether

the statements and omissions in each of the twelve SEC filings and in each of the four categories

of pricing supplements were false or misleading and whether they were material to a reasonable

investor. All of the claims can be considered by a single jury using a verdict form that asks the

jury to decide whether plaintiffs proved the elements of the claim with respect to each statement.

See In re Vivendi Universal, S.A. Securities Litig., 765 F. Supp. 2d 512, 524, 577-80 (S.D.N.Y.

2011) (describing the verdict form, which “identified fifty-seven sets of statements alleged by

plaintiffs to have violated Section 10(b)” and “asked the jury to determine whether plaintiffs had

proven the elements of their Section 10(b) claim with respect to each of the fifty-seven

statements”). Thus, “the establishment of the named plaintiffs’ claims [will] necessarily

establish[] those of other class members.” Plumbers’ Union Local No. 12 Pension Fund v.

Nomura Asset Acceptance Corp., 632 F.3d 762, 770 (1st Cir. 2011).

Including the reinstated offerings in the class definition does not implicate UBS’s

argument that individual issues of investor knowledge predominate over common issues. In


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opposing class certification, UBS filed declarations of two experts, the head of its structured

products department, a sales consultant, and four of its financial advisors, none of whom

distinguished between the offerings the plaintiffs purchased and the offerings they did not

purchase. In fact, plaintiffs objected to most of UBS’s evidence on the grounds that it did not

focus on the offerings that were the subject of the class certification motion and instead

referenced the “Notes” generically, see Dkt. No. 912, but the Court considered UBS’s evidence

anyway. See In re Lehman, 2013 WL 440622, at *3, 4 (identifying the evidence considered).

Thus, the Court has already addressed UBS’s knowledge argument with respect to all 84

offerings, its findings are the law of the case, and there is no reason to reconsider the issue on

this motion. See Langley, 715 F. Supp. at 553; In re J.P. Morgan, 255 F.R.D. at 133-34.

D. The Class Action Is Still Superior

Class certification will still be the most efficient way to adjudicate the claims based on all

84 offerings. In its class certification ruling, the Court held that class members are “entitled to

the benefits of class treatment” and that the individual FINRA arbitrations UBS proposed would

not be superior to a class action. In re Lehman, 2013 WL 440622, at *5. The Court also

concluded that “[t]here are no apparent difficulties in the management of this case beyond those

that attend any large securities class action.” Id. The addition of the reinstated offerings does

not impact that conclusion, since the same evidence will be used to prove the claims based on all

84 offerings. In fact, NECA-IBEW simplifies this case for trial on a class basis. Including the

reinstated offerings will increase the efficiencies of proceeding with these claims on a class wide

basis because more investors’ claims can be tried using the same evidence that would be required

for the offerings the plaintiffs purchased.


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V. CONCLUSION

Plaintiffs respectfully request that the Court reconsider its ruling on defendants’ motion

to dismiss and reinstate the claims based on the offerings it dismissed on standing and statute of

repose grounds, and amend its class certification order to include the reinstated offerings.

Dated: April 23, 2013 Respectfully submitted,

GIRARD GIBBS LLP By: /s/ Daniel C. Girard Daniel C. Girard Jonathan K. Levine Amanda M. Steiner John A. Kehoe Dena C. Sharp 601 California Street, Floor 14 San Francisco, CA 94108 Tel: (415) 981-4800 Fax: (415) 981-4846 Class Counsel and Counsel for Plaintiffs Mohan Ananda, Richard Barrett, Neel Duncan, Nick Fotinos, Stephen Gott, Karim Kano, Barbara Moskowitz, Ronald Profili, Lawrence Rose, Joe Rottman, Grace Wang and Miriam Wolf ZWERLING, SCHACHTER & ZWERLING, LLP Susan Salvetti Justin M. Tarshis 41 Madison Avenue New York, New York 10010 Telephone: (212) 223-3900 Facsimile: (212) 371-5969 Counsel for Plaintiffs Ed Davis, Rick Fleischman, J. Harry Pickle, Trustee Gastroenterology Associates, Ltd. Profit Sharing Plan FBO Charles M. Brooks M.D., and Juan Tolosa


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LAW OFFICES OF JAMES V. BASHIAN, P.C. James V. Bashian 500 Fifth Avenue, Suite 2700 New York, New York 10110 Telephone: (212) 921-4110 Facsimile: (212) 921-4229 Counsel for Plaintiff David Kotz BONNETT FAIRBOURN FRIEDMAN & BALINT, P.C. Andrew Friedman 2901 North Central Avenue, Suite 1000 Phoenix, Arizona 85012 Telephone: (602) 274-1100 Facsimile: (602) 274 1199 TIFFANY & BOSCO P.A. Richard G. Himelrick 2525 East Camelback Road Phoenix, Arizona 85016 Telephone: (602) 255-6000 Facsimile: (602) 255-0103 Counsel for Plaintiff Shea-Edwards Limited Partnership


UNITED STATES DISTRICT COURT SOUTHERN DISTRICT … [Dkt. 1184] The... · UNITED STATES DISTRICT...

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